EXCEL (Entries for Conversion, Amortization, and Interest of Bonds) Volker Inc. issued \(2,500,000 of convertible 10-year bonds on July 1, 2017. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was \)54,000, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Volker Inc.’s \(100 par value common stock for each \)1,000 of bonds. On August 1, 2018, $250,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash.

Instructions

Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following

dates. (Round to the nearest dollar.)

(a) August 1, 2018. (Assume the book value method is used.)

(b) August 31, 2018.

(c) December 31, 2018, including closing entries for end-of-year.

Step by step solution

01

Being the entry for the conversion

Date	Particulars	Debit	Credit
August 1, 2018	Bonds Payable	$250,000
	Discount on Bonds Payable		$4,815
	Common Stock		$200,000
	Paid in Capital		$45,185
	(Being entry for conversion)
August 1, 2018	Interest Payable	$2,500
	Cash		$2,500
	(Being entry for the interest payable)

02

Entry for interest payable

Date	Particulars	Debit	Credit
August 31, 2018	Interest Expense	$405
	Discount on bonds payable		$405
	(Being entry for the interest Expense)
August 31, 2018	Interest Expense	$22,500
	Interest Payable		$22,500
	(Being adjustment entry for interest expense)

03

Closing entry

Date	Particulars	Debit	Credit
December 31, 2018	Income Summary	$292,675
	Interest Expense		$292,675
	(Being closing entry at the end of the year))

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